Are you earning money when you spend money? If not, you are missing out!

Everyone (including me) talks about how to save money, but everyone wants you to spend money on their products, of course! So what’s a smart Mama like you to do? You need to make sure you are spending money the “right way”!

What’s the right way, you ask? Well, it’s the way that works best for you! The way that brings you the most benefit and the way that you can stick to. We’re going to walk through a few of the popular methods, and a few pitfalls to avoid! And after reading this post, you know how to maximize your purchases and avoid common mistakes! So let’s go spend some money!

How to Spend Money the Smartest Way Possible

How much money do Americans actually spend?

Let’s cut to the chase, shall we? The latest available Bureau of Labor data, from 2018, cited that the average American spent $61,224 for the year! (Yowza!)  Say whaaat?  Dang, I went through a lot of money! How much money do you think you spent last year?

According to the report, spending was up 1.9% over last year, which included the categories of…

  • personal insurance (up 7.8%)
  • food (up 2.5%)
  • transportation (up 1.9%
  • housing (up 1%, ownership was down while renting was up)
  • healthcare (up .8%)

There was one area where our spending decreased, can you guess what it was? I saw this and was a bit saddened. It was…

  • education (down 5.6%)

I am guessing that college is getting too expensive, so people aren’t going. But I think we can all agree that we wish this category were up, but due to more people going and not just an increase in cost.

The report also cited the average pretax income was $78,635, which is good because that means we aren’t spending more than we make. (This is a very generalized and averaged statement, as there were 327.2 million people in the US at the time of the report).

What is a spending strategy?

This is a fair question, as we don’t really think of spending money in a strategic sense. Yet, you should have one! If you don’t then you’re leaving money on the table in a big way! I’ll talk you through how we spend money as it will make it more clear…

  • 90% of our spending goes on one credit to maximize 2.5% cashback (that a great rate, it’s uncomplicated, and we use that money back strategically too! It pays our yearly dues for our Disney Vacation club contract (timeshare).
  • At Target I use my REDcard to get 5% off each transaction and get special coupons and discounts
  • On our annual Disney Park vacation, we use our Disney Chase Visa to save 10% at the time of purchase (most places) and then earn 1% back.
  • I use ibotta & Fetch to scan all my receipts to earn points to buy gift cards for Target. I use those gift cards to either buy diapers (as I buy in bulk to score more gift cards, or I save them for Christmas shopping.

There are a few other smaller things we do, but the above examples give you a good general idea of what I mean by spending strategically.  

You may be thinking that this sounds like a lot of effort to go through for limited returns. It’s not. This process is so automatic by now, it’s second nature to me, but I do still think about when is the right time to buy things, is it on sale, a gift card deal, a good value, etc. All of these small returns add up to big savings!

Charles Jaffe quote on Spending Money

Why you should have a spending money plan

You save money

For my example above, if we spent the average amount mentioned above. $61,224, and put it all on our 2.5% cash back card that would have been $1,530 back into our pocket! Not too shabby!

It’s less complicated

For the most part, we use one card, easy peasy lemon squeezy! Where people often get into trouble is that they use cash for something, use their debit, and then you use a few of your credit cards (the average American who has cards has an average of four). You can see how hard it would be to track your money and see where it all went!

You can earn money

So this strategy isn’t for credit card beginners or those who may use their cards too liberally. This is for the hardcore, and super organized making money geek! It’s called credit card farming (or churning). It’s where you sign up for cards specifically to get the bonus they are offering, and then you close the card and move on to the next offer. You can read about how I made $1,000 one year, see #9 here with this strategy.

How do you pick the right spending strategy

The first thing you need to do is to know yourself. This sounds kooky, but hear me out. If you know that you aren’t very organized, then don’t pick a method with lots of moving pieces. For example, there are cards where you 5% back on groceries one month, and then the next card is 4% back on gas and entertainment, and then it switches it up in two months to 3% back on big box store purchases, and on and on. To me, that’s too complicated! But if you have the time to devote to this and are organized, then great, do it! So think about

  • ease of use
  • ease of tracking
  • return on time
  • where you’ll “spend” your savings

Let’s talk about the last point. How you will spend your savings. As I said above, we use to pay our vacation dues. We would have had to spend the money anyway, so this was indeed a savings. Yet, if you just decide to go a buy a custom cat structure, with organic bedding and you’re only just thinking of getting a cat, then you just wasted this money. It’s only a savings if you use it on things you would have had to already buy.

Top Two Strategies

Credit cards

I am a big fan of using cards, as I really like getting rewards. And it makes it easy to keep track of where our money goes. You just need to make sure that you will actually use your rewards. For example, many have travel rewards cards, but they don’t ever travel. In fact, a decent percentage of travel rewards are neer redeemed. Because we “intend” to use them, we just don’t get around to actually doing it.

Bummer. Look for a card…

  • has rewards that you will actually use
  • has rewards that you understand how you earn them and their actual value (not just perceived value)
  • no annual fee (or a minimal fee)
  • a decently low-interest rate (but ideally you’d pay your cards off in full every month)
  • has rewards that don’t expire, or have a very long shelf life

Even though I encourage people to use credit cards (for their earning potential), I want to be very clear. If you are not paying your balance off in full every month then you are negating any benefit you might get from earning points or rewards! All too often, we get into trouble from overspending, and then we end up paying crazy high interest rate fees. So please, know yourself and your habits!

If you are hesitant to use cards (because you may have gotten into debt in the past) then kudos to you for being cautious. Yet, if you want to try and earn some points (and see how you do) then get a good reward card and ask them to lower the limit. This way you can’t overspend!

All cash

The biggest reason (and benefit) to using all cash when spending money is that you cannot overspend! This is huge, especially if you tend to be a bit to free with your spending. Yet, you need to be dedicated to the process, and you need to be organized!

Dave Ramsey has popularized the method, and his get out of debt strategy. Honestly, it’s not glamourous, but it absolutely works if you follow the plan!

In fact, it’s been proven (across multiple studies) that when you pay with cash, you spend less. You have a more emotional connection to cash as when you use credit; you aren’t as “connected” to the money. One of the most often cited studies is one conducted by Dun & Bradstreet, where the company found that people spend 12-18% more when using credit cards instead of cash (yet finding a first-hand copy of the study is hard).  

McDonald’s famously reported (years ago) that its average ticket was $7 when people use credit cards versus $4.50 for cash. Also, ValuePenguin, found that with credit cards, customers have been shown to leave tips that are 13% larger than their counterparts who paid with cash. This isn’t a bad thing but something to be aware of.

If you’re going to go all cash, then you’ll need a few things to stay organized, as an organization is KEY for success with this method!

You’ll need some cash envelopes and a wallet. That’s it. If you’re just starting out, and not sure how you’ll like it you can grab some of my free templates here, just print, fold, and tape. You’re all set!  

Yet, it’s kinda fun to get creative and get envelopes that are very specific to what you’re saving for (there are so many possibilities on how to use & save with cash envelopes. I use them as sinking funds, to save up for specific events, like Christmas, vacation, soccer camp, birthday presents, etc. 

You can grab reusable envelopes here, (don’t forget to sign up here to get the forms that you’ll need each month), and there are some budget-friendly and cute wallets right on Amazon!

Cash & credit

You can combine the two main methods to get the best of both worlds! Get a rewards credit card for all your monthly bills (automate the payments first thing). Then use cash envelopes for your discretionary spending categories like groceries, gas, clothes, fun money, etc. Many people do this, but just be sure to make a very clear distinction of what’s a card purchase and what’s cash.

At the end of the day

Remember that the first step is to make sure that you know yourself and how you currently spend money and how you’d like to spend money. Don’t set yourself up with a system that doesn’t play to your goals or your strengths. Identifying your money spending strategy can help you earn a lot of money, and who couldn’t use an extra $1,530 in their pocket! I know I could, could you?

Are you going to change how you spend money?